The choice between bankruptcy and debt relief

Written by Henry Young. Posted in Business Finances

In a world of exaggerated consumerism and unrestrained possibilities for taking on debt, people find it hard to resist temptation and reach an equilibrium between financial capabilities and debts. Therefore, many individuals find themselves in the situation of not being able to make the monthly payments to creditors any longer, thus having to declare bankruptcy or resort to debt settlement services. However, most people are not fully aware of the exact difference between these options and many of them fear the consequences of either one on their credit score. Fortunately, there are plenty of resources available on the Internet, so people can find reliable info on the matter, even on authorized websites, supported by governmental sources, such as http://www.consumer.ftc.gov/articles/0084-debt-relief-or-bankruptcy. Moreover, there are so many people in this situation that the online environment is full of blogs and specialized sites that discuss the topic and offer individuals valuable information about settling their debts, resorting to professional services and companies, how to choose their debt settler and so on.

People who worry about their credit score should know that bankruptcy usually has a greater negative impact on one’s credit report than debt settlement. There are several types of bankruptcy and they affect a person’s credit score differently. For instance, Chapter 7 and Chapter 11 bankruptcies stay on one’s report for 1o years after filing, while Chapter 13 only remains on a person’s credit report for seven years from the date of filing. However, if you don’t want to have this “stain” on your record, the best thing you can do is try a debt management plan, so you might want to get in contact with the National Foundation For Credit Counseling, which will help you determine whether or not you qualify for such a plan. You can also work with any agency that is a member of the Association of Independent Consumer Credit Counseling Agencies, which can as well help you repay your debts through monthly payments. This management plan is the least damaging solution for your credit score, but unfortunately not all people qualify for such a debt management plan, because their income is not sufficient.

If you don’t qualify for a debt management plan, then the only left solution is debt settlement. The difference is that, in most cases, this requires you making a lump sum payment in order to settle the account. However, in order to afford making a settlement offer, most people need to stop making payments, which will of course damage the credit score and make people face the risk of getting sued by creditors. Not only that, but if you resort to the services of a debt settlement company, then you have to pay those services as well. Nevertheless, bankruptcy can turn out costly as well, as Chapter 7 and Chapter 13 require you to repay a portion of the money you owe anyhow. If you find yourself in the situation of owing more money than you can pay, the best thing would be searching for expert legal and accounting advice, in order to make the right decision.